The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Uganda's economic performance under an SDR 13.5 million (about US$20.3 million) three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 02/41) and approved a disbursement for an amount equivalent to SDR 2.0 million (about US$3.0 million). This brings total disbursements under the PRGF arrangement to SDR 9.5 million (about US$14.3 million).

In completing the fourth review, the Executive Board granted Uganda's request for waivers of non-observance of four quantitative performance criteria relating to: the ceiling on the increase in base money liabilities of the Bank of Uganda; the ceiling on the increase in net claims on the central government by the banking system; the accumulation of new domestic budgetary arrears under the commitment control system; and new lending by the Ugandan Development Bank Ltd., pending its divestiture.

Following the Executive Board's discussion on the fourth review on February 23, 2005, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chairman, made the following statement:

"The impressive economic growth and poverty reduction that was achieved through a first wave of reforms has started to taper off, while a firm basis for sustained growth and poverty reduction remains to be established. Therefore, there is a need to launch a second wave of reforms to (i) increase the rate of growth; (ii) address the challenges stemming from the high population growth; and (iii) continue to reduce poverty and achieve the Millennium Development Goals. In this context, the revised Poverty Eradication Action Plan should initiate such a reform process. Peace and security throughout the country will also be needed to achieve sustained and broadbased poverty reduction.

"Economic growth rebounded and inflation declined in 2003/04 due to improved agricultural production. However, continuing weaknesses in the implementation of fiscal policy and slippages under the PRGF-supported program in 2003/04 are a concern. The authorities acknowledge the seriousness of the slippages and are committed to bringing the program back on track and enhancing its monitoring.

"The authorities plan to sustain a higher rate of growth by pursuing a medium-term fiscal consolidation strategy to maintain debt sustainability and create more room for the private sector. This strategy rests appropriately on increasing domestic revenue mobilization and enhancing expenditure management, including a better monitoring of the government's domestic arrears and a strengthening of the administrative capacity at the local government level. In this regard, the ongoing restructuring of the Uganda Revenue Authority (URA) is welcome, particularly in light of the revenue loss expected with the implementation of the East African Community (EAC) customs union. Addressing forcefully corruption in the URA is key to building confidence in public institutions. The implementation of Export Processing Zones needs to meet international standards and be tightly ring-fenced to avoid tax evasion.

"The revival of public administration reforms will be important to increase the efficiency of government expenditure and ensure appropriate wages for public employees. More generally, a comprehensive strategy to strengthen governance is needed to reduce risks to the budget and improve the business environment.

"Monetary policy will be aimed at preserving price stability, and the flexible exchange rate policy will help maintain international reserves at comfortable levels. Early passage of the Anti-Money Laundering Law by parliament will further build confidence in the financial system. In addition, divestiture of the Uganda Development Bank Ltd. should enhance credit delivery to the private sector.

"The rise in the external debt burden is a source of concern. It will be important for the authorities to tackle this by relying more on grant financing rather than loans, while promoting export growth and diversification," Mr. Kato said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5.5 year grace period on principal payment.